Carnival Stock Has a Lot to Prove This Week

It's finally been a good year to be a Carnival Corp. (CCL -0.66%) investor. Shares of the world's largest cruise line operator have soared 131% this year. The industry's recovery from the COVID-19 crisis has been long, but it finally appears to be complete. Profitability is back for all of the major operators, and bookings for future sailings are now exceeding pre-pandemic records.

The market will get an important update when Carnival steps up with its fiscal fourth-quarter results on Thursday morning. Expectations are high, but the same can be said of the chances for a strong report. At least three major analysts have bumped their price targets higher on Carnival over the past week, a strong indication that some of the market pros that follow the company want to be more bullish heading into the telltale earnings release and subsequent earnings call later this week.

Hoping for a bon voyage

Carnival posted record revenue of $6.9 billion in its latest quarter three months ago. It also came through with its first profitable quarter since the end of fiscal 2019, ending a streak of 14 straight quarterly losses.

Expectations for this week's report may initially come off as a buzzkill. Analysts are holding out for a loss of $0.13 a share on $5.3 billion in revenue for the fiscal fourth quarter it will reveal on Thursday. Why is Carnival back in the red? Why is the top line shrinking sequentially?

Well, this is a seasonal business. There's a big difference between the three months ending in November -- that Carnival will be discussing -- and its blowout performance for the three months ending in August. Families travel over the summer when school is out, and the warmer weather is conducive to tropical beach shore excursions and other touristy port-of-call destinations.

Compare the fiscal fourth quarter to where Carnival was a year ago, and the seas appear more kind. Carnival's deficit clocked in at $0.85 a share in the final frame of fiscal 2022. The $5.3 billion that Wall Street pros are targeting in revenue is a 38% improvement over the past year. If you want some better news, momentum suggests that reality will be even better.

Data source: Yahoo! Finance. EPS = earnings per share.

Carnival has topped analyst earnings estimates with ease over the past year, and the gap has been widening. Could Carnival actually surprise the market with a profit? All 14 of the major firms putting out projections are bracing for a loss of at least $0.10 a share, but positive net income is certainly possible. Occupancy levels are climbing and fuel costs -- a major expense on cruise ships -- have been contracting in recent months.

Image source: Getty Images.

Lining up for the midnight buffet

Three analysts have revised their price targets higher on Carnival shares over the last four trading days. This week kicks off with Andrew Didora at Bank of America lifting his goal from $20 to $22. Cruising trends and encouraging reports on pricing surveys as well as credit and debit card data are favorable for the industry. Late last week there were analysts at J.P. Morgan and Barclays also pushing their price targets $2 higher.

Cruise lines had to do a lot of unflattering things to stay solvent during the cruising market's shutdown. Carnival had to load up on debt at high rates and crank out new shares at low prices. It will take time for per-share profitability to reach historic highs, but Carnival is trying. It has already paid down $4 billion in debt from its peak earlier this year. Carnival is trading for 20 times this new fiscal year's projected earnings and just 14 times next year's target. The shares have come a long way this year, but it doesn't mean another blowout performance on Thursday can't keep the gains coming.